On December 7, 2025, Congress released the compromise version of the National Defense Authorization Act of Fiscal Year 2026 (NDAA). The House of Representatives passed the legislation on December 10 and, if the Senate follows suit, the bill could make its way to the president for signature into law by the end of 2025. The bill authorizes a staggering $900.6 billion for the Department of Defense (DoD) and other national security programs, including $161.7 billion¹ for procurement, $8.9 billion more than the White House requested. Here is what government contractors need to know regarding:

• Reform to the defense acquisition process
• Bid protest penalties
• Past performance expansion
• Harmonization of cybersecurity requirements
• Consumption-based solutions 
• Strengthening the supply chain, industrial base, and manufacturing
• Provisions left out of the final NDAA

Administration's Effort to Reform the Defense Acquisition Process

In line with the White House's broader efforts to reform the acquisition process, the bill aims to overhaul the "Pentagon's broken, bureaucratic acquisition process so that our troops can quickly get the tools they need to deter our enemies," according to House Committee on Armed Services Chairman Mike Rogers (R-AL). It codifies 15 executive orders (E.O.s) issued by the president, including E.O. 14265, "Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base." The provisions implementing E.O. 14265 and other acquisition reform efforts include: 

• Prioritization of best value and innovative solutions. Several NDAA provisions reflect a greater focus on DoD acquiring innovative solutions, as well as solutions that represent the "best value" to the government, newly defined as "the optimal combination of cost, quality, technical capability or solution quality, and delivery schedule." For instance, section 1801 rewrites 10 U.S.C. § 3102, "Objectives of the defense acquisition system," directing the Secretary of Defense (the Secretary) to issue guidance that, among other things, requires resource decisions to "prioritize best value" and the "active pursuit of innovative solutions to enhance effectiveness of the armed forces and responsiveness to emerging threats, including the acquisition and integration of commercial products and commercial services." Relatedly, section 812 amends 10 U.S.C. 3012(3)(b), which defines what constitutes competitive procedures under the General Services Administration (GSA) Multiple Award Schedule (MAS) Program, from MAS orders and contracts that "result in the lowest overall cost alternative to meet the needs of the United States" to those that "result in the best value to meet the needs of the United States." All told, the bill authorizes $145.7 billion for research, development, testing, and evaluation efforts "to field [] innovative new technologies" including artificial intelligence, quantum computing, autonomous systems, space-based capabilities, and directed energy systems.
• Increased integration of commercial products and services. The NDAA continues the government's increasing emphasis on commercial products and commercial services procurement. In particular, section 1822 adds language to 10 U.S.C. § 3453, "Preference for commercial products and commercial services," requiring contracting officers (COs) to only use non-commercial options if they determine, under a new process, that there are not suitable commercially available alternatives. Section 1828 directs DoD to undertake a comprehensive review of its approach to acquiring commercial products and services aimed at increasing the Department's acquisition of such products and services and increasing commercial item determinations. Section 1821 requires the Defense Federal Acquisition Regulation Supplement (DFARS) include a list of defense-unique contract clause requirements that may be applied to commercial products and services contracts and subcontracts and Commercial Off-The-Shelf (COTS) acquisitions. And section 1823 expands the use of Commercial Solutions Openings (CSOs), which are designed to streamline the acquisition of innovative commercial solutions by allowing DoD to award sole-source follow-on production contracts and removing an approval requirement for CSO procurements over $100 million. 
• Changes to cost or pricing data requirements. Section 1804 raises the prime contract threshold for requiring cost or pricing data to $10 million, from $2 million, for contracts entered into after June 30, 2026. Relatedly, section 812 revises 10 USC § 3703, governing exceptions to the Truth in Negotiations Act, to provide that submission of certified cost or pricing data is not required when the agreed upon price is based on "adequate price competition" versus "adequate competition that results in at least two or more responsive and viable competing bids." 
• Reductions to applicability of Cost Accounting Standards (CAS). Section 1806 raises the threshold for the applicability of CAS for contractors from $2 million to $35 million. According to the Office of Management and Budget (OMB), the change will provide relief from CAS for approximately half of currently covered entities, but retain coverage over 90 percent of the dollars. It also directs DoD to raise the contract threshold for full compliance with CAS from $50 million to $100 million.
• Eliminating barriers to entry. Section 824 directs the Defense Acquisition Regulations Council, within 90 days, to "make recommendations to identify and eliminate specific, unnecessary procedural barriers" that "disproportionately affect the ability of small business concerns and non-traditional defense contractors" to compete for DoD procurements "with a focus on streamlining documentations and qualification requirements." Within two years, the Council must implement any identified regulatory changes, and the Secretary is required to brief Congress on any legislative changes that would reduce identified barriers. Likewise, section 1826 exempts non-traditional defense contractors from certain accounting, budgeting, and other requirements found in the DFARS. 
• Acquisition workforce reforms. The bill devotes several provisions to workforce development. Section 826 requires DoD to implement "mandatory key performance objectives" in evaluating the acquisition workforce that take into account new factors that align with the administration's focus on the use of commercial products and services and innovative acquisition techniques. Specifically, workforce member evaluations must consider their "preference for commercial products and services and supporting market research for commercial or emerging technologies," "adoption of innovative acquisition authorities and approaches," and "ability to use iterative development cycles," including the termination of capabilities development that no longer align with Department priorities or that are experiencing significant delays or cost overruns. Relatedly, section 825 mandates DoD undertake a comprehensive review of the Defense Acquisition University (DAU) to "strength the ability of DAU to train and develop members of the acquisition workforce." 
• Repeal of existing law. In addition to the numerous de-regulatory changes, the NDAA repeals more than 60 provisions from existing law, many relating to acquisition policy limitations, reporting requirements, and expired pilot programs. Among others, section 811 repeals 10 U.S.C. § 3373 (limitations on use of undefinitized contract actions), § 3455 (requirements for when DoD may treat a major weapon system as a commercial product), and § 4423 (limitations on weapon system component or technology prototype projects). 

Bid Protest Penalties 

Likely to be the most controversial NDAA change, section 875 calls for a DFARS provision that allows COs to withhold payments – up to five percent of the total amount to be paid – from incumbent contractors who file a Government Accountability Office (GAO) protest that extends performance (i.e., via a bridge contract) during a Competition in Contracting Act (CICA) stay. The DFARS provision will also authorize the CO to convert withheld payments to forfeited payments when GAO makes a final determination "to dismiss such bid protest based on a lack of any reasonable legal or factual basis...." 

Earlier this year, GAO sent a letter to Congress disagreeing with the proposed change, stating the process "may have a chilling effect on the participation of firms in the protest process and federal procurements as a whole," reducing competition and driving up prices. GAO also noted that DoD-related protests have declined by 48 percent over the past 10 years and that only 1.5 percent of all DoD procurements are protested, calling into question the impact the provision will truly have on reducing protest litigation. The change invites additional questions about the potential increased litigation it may cause. Challenges to these withholds and forfeitures would be resolved under the Contract Disputes Act (CDA) at the Armed Services Board of Contract Appeals (ASBCA) or the Court of Federal Claims (COFC). This raises a host of important questions: 

• Will the ASBCA or COFC be forced to review the CO's decision de novo as well as the underlying GAO decision? COFC already does so for GAO protests that are re-filed, but not for contract administrative matters. 
• If a protest is re-filed at the COFC, is the clock to appeal a CO's decision to withhold or forfeit payment – or both – under the CDA running at the same time a protest is being re-litigated at the COFC? At the Federal Circuit? This scenario may invite protesters to raise both matters – protest and the contract dispute – simultaneously at the court. For the ASBCA, it is unclear how the process would play out, but it has the potential to be complicated. 

Increased Competition through Past Performance Expansion 

Section 824 directs the Secretary, within one year, to issue guidance on (a) when DoD "should accept past performance on a wider range of projects, such as a requirement without much precedent, in order to have increased competition… by including commercial or non-government projects as relevant past performance," (b) how DoD can validate non-government past performance references, and (c) using alternative methods of evaluation other than past performance where appropriate, such as demonstrations and technology testing. 

Harmonization of Cybersecurity Requirements

Section 866 directs the Secretary, in coordination with the Chief Information Officer of each military department, by June 1, 2026, to (a) "harmonize the cybersecurity requirements applicable to the defense industrial base," (b) reduce the number of cybersecurity requirements unique to specific DoD contracts, and (c) produce a report to Congress on the actions taken. The harmonization will also ensure procedures are in place to eliminate duplicative and inconsistent requirements and so that any future cybersecurity requirements are not duplicative.  

Consumption-based Solutions 

Section 1825 adds 10 U.S.C. § 3605, granting DoD the authority to acquire software, hardware, data, or services through consumption-based solutions, where DoD could be billed based on its usage.

Strengthening the Supply Chain, Industrial Base, and Manufacturing

The NDAA includes myriad provisions aimed at improving DoD and defense contractor supply chains, as well as strengthening the defense industrial base and its manufacturing capabilities. 

Section 833 provides that contractors who discover non-compliant items as part of supply chain illumination efforts conducted to increase supply chain transparency are eligible for interim national security waivers that allow the non-compliant item to nonetheless be delivered under a DoD acquisition if certain conditions are met. Section 836 contemplates the establishment of a DoD online repository where contractors will be encouraged to attest to compliance of its products offered and delivered to DoD with certain sourcing requirements, including the Buy American Act. The Secretary is also directed to develop policies that encourage contractors to register covered products and incentivize them to disclose non-compliance. The provision is aimed at promoting domestic industry and accelerating private investment in supply chain technologies that are "critical for national security." And section 837 establishes a working group that will develop recommendations to enhance the exchange of information between DoD and defense contractors regarding compliant materials, that abide by certain prohibitions on foreign sources and accelerating the qualification and use of such materials in DoD and its supply chains. Various other provisions seek to reduce U.S. reliance on goods from foreign entities of concern. See, e.g., section 838 (DoD assessment of critical infrastructure that relies on materials or components originating from foreign entities of concern); section 842 (prohibition on acquisition of advanced batteries from foreign entities of concern); section 850 (phasing out computer and printer acquisitions involving entities owned or controlled by China); and section 851 (prohibition on contracting with biotechnology companies of concern).

Additional efforts to strengthen the industrial base, and manufacturing specifically, include: 

• Section 867 (permitting DoD to utilize the Defense Industrial Base Fund – designed to strengthen defense manufacturing and address supply chain vulnerabilities – for enumerated purposes including to procure critical minerals, materials, and chemicals, procure unmanned vehicles, ships, submarines, defense space systems, and batteries, to support the defense industrial base workforce, and to support advanced manufacturing capabilities of the industrial base)
• Section 1841 (establishing the Civil Reserve Manufacturing Network, comprised of government, industry, and academic entities, aimed at "preserv[ing] the military advantage of the United States and broaden[ing] domestic manufacturing capability and capacity in the defense industrial base")
• Section 1843 (establishing a working group to identify opportunities to address workforce shortages in advanced manufacturing career fields in industry) 
• Section 1844 (establishing a collaborative forum for government, private sector, academic, and non-profit entities to address challenges and limitations of the industrial base)
• Section 1847 (directing DoD to issue a congressional report on "efforts to identify and address regulations or policies that discourage or prevent contractor in the defense industrial base from maintaining or investing in surge capacity" to respond to increased demand for defense articles and services)

Provisions Removed from the Final NDAA

Right to repair provisions: Most notably missing from the compromise legislation is "right-to-repair" language that would have addressed DoD's reliance on original equipment manufacturers to make necessary repairs and perform maintenance in the field. The House had previously proposed a Data-as-a-Service Solutions for Weapon System Contracts provision, which would have required DoD to negotiate access to technical data and necessary software before signing a contract. Similarly, the Senate version of the bill contained a provision requiring contractors to provide the military with detailed repair and maintenance instructions. But industry warned that the proposed language could deter companies from contracting with the Department, hampering its access to innovative technologies. 

In its place, section 805 requires DoD to develop and implement a "digital system to track, manage, and enable the assessment" of technical data and verify whether contractors and subcontractors comply with their technical data contract requirements. DoD will use the system to identify any "insufficiency… that negatively affects" DoD's ability to effectively operate and maintain systems in a cost-effective manner, and to determine ways to address the insufficiency, including through the use of access and licensing agreements or new contract options. 

Renaming DoD: The legislation does not include language effectuating E.O. 14347, renaming the Department of Defense to the Department of War.

Artificial intelligence (AI) moratorium: Despite support from the White House and many congressional Republicans, a proposal to preempt state AI laws was left out of the final version of the NDAA. In response, the president issued E.O. 14365, "Ensuring a National Policy Framework for Artificial Intelligence," on December 11, 2025, calling for the establishment of a "uniform Federal policy framework for AI that preempts State AI laws that conflict" with the expressed policies of the order. 

Reauthorization of the Technology Modernization Fund (TMF): The bill does not re-authorize funding to the TMF, which was created in 2017 to fund technology projects across the government. The Fund expired December 12, 2025. Lawmakers have indicated that a reauthorization bill is scheduled for markup early next year. 

If you have any questions about the 2026 NDAA's impact on your company or government contractors generally, please contact one of the Miller & Chevalier attorneys listed below:

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Ashley Powers, apowers@milchev.com, 202-626-5564

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

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¹Specifically, the NDAA authorizes $63.8 billion in procurement funding for the Navy, $55 billion (Air Force), $28.5 billion (Army), $3.8 billion (Marine Corps), $3.4 billion (Space Force), and $7.2 billion (defense-wide procurement programs). 

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